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Market Comment for Week of August 9, 2010…

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MARKET COMMENT   Mortgage bond prices were near unchanged last week holding rates in check. Stock strength the early part of the week caused bonds to struggle. Weaker than expected personal income, outlays, PCE Core, and factory orders data helped bonds bounce back a bit. Stocks extended their gains Wednesday once again at the expense of bonds. Higher than expected weekly jobless claims had investors jittery heading into the employment report. The jobs report released Friday confirmed fears that unemployment remains high in the US. 

Rates fell by about 1/8 of a discount point for the week. 

The most important event this week will be the Fed meeting Tuesday. The Treasury auctions may also move the markets. 


  • Preliminary Q2 Productivity; Aug. 10; Consensus Estimate 2.8%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • 3-year Treasury Note Auction; Aug. 10; Consensus Estimate None; Important. $34 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Fed Meeting Adjourns; Aug. 10; Consensus Estimate No changes; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
  • Trade Data; Aug. 11; Consensus Estimate -42.3B; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; Aug. 11; Consensus Estimate None; Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 30-year Treasury Bond Auction; Aug. 12; Consensus Estimate None; Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; Aug. 13; Consensus Estimate Unchanged Core up 0.1%; Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
  • Retail Sales; Aug. 13; Consensus Estimate Down 0.2%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • U of Michigan Consumer Sentiment; Aug. 13; Consensus Estimate 67.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • Business Inventories; Aug. 13; Consensus Estimate Up 0.1%; Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates.

BOND PURCHASES   There was talk last week that the Fed may resume the purchases of mortgage-backed securities in order to try to boost the struggling US economy. Generally when there is more demand for a bond the price increases and rates fall. This could push mortgage interest rates even lower than their current historic levels. The Wall Street Journal reported that the Fed might make “a modest but symbolically important change” in how they manage their securities portfolios. Analysts indicate the Fed could use proceeds from maturing mortgage bonds to restart their MBS buying. We should hear some news regarding this following the Fed meeting this week. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

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